2 High-Yielding Dividend Tobacco Stocks during Downturn


Mar. 23 2020, Updated 12:42 p.m. ET

  • The global financial markets are going through a downturn as the coronavirus cases continue to rise. I think that investors should look for high dividend-yielding stocks during these conditions.
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High-yielding dividend stocks

As of today, the number of coronavirus cases exceeded 340,000 and more than 14,700 deaths, as reported by CNN. In the US alone, there have been over 34,000 cases reported and over 400 deaths. Concerns about the virus spreading and the economic implications caused havoc in the global financial markets. The S&P 500 Index and the Dow Jones Industrial Average have fallen by 32.1% and 35.2% from their respective peaks. So, amid the downturn, investors should find safety in high-yielding dividend stocks. In this series, we’ll discuss two tobacco stocks with high dividend yields.

Altria Group

As of March 20, Altria Group (NYSE:MO) was trading at $34.28. The company has lost 31.3% of its stock this year and also trades 40.8% lower compared to its 52-week high of $57.88. After reporting its fourth-quarter earnings on January 30, Altria’s management lowered its adjusted EPS growth guidance from 2,020 to 2,022 due to no equity contribution from JUUL until 2022. The weak EPS guidance and the sell-off in the broader equity market have dragged the stock down. On February 27, Altria’s board declared a quarterly dividend of $0.84 per share with an annualized payout rate of $3.36 per share. The company will pay dividends on April 30 to shareholders on record as of March 25. As of March 20, the company’s dividend yield was 9.06%. Altria stock was trading at $34.28.

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Philip Morris International

As of March 20, Philip Morris (NYSE:PM) traded at $61.09. The stock has lost 28.2% since the beginning of this year. Meanwhile, the stock has fallen by 32.3% from its 52-week high of $90.17. Last month, the company had an impressive fourth-quarter performance. However, weakness in the broader equity markets appears to have dragged the stock down. On March 5, Philip Morris’s board declared quarterly dividends of $1.17 per share with an annualized payout rate of $4.68 per share. As of March 20, the company’s dividend yield was 7.05% with its stock price trading at $61.09.

Valuation multiple

As of March 20, Philip Morris was trading at 11.1x analysts’ 2020 EPS estimate of $5.50 and at 10.2x analysts’ 2021 EPS estimate of $5.96. Their EPS estimates represent growth of 5.9% YoY in 2020 and 8.5% YoY in 2021. As of March 20, Altria was trading at 7.8x analysts’ 2020 EPS estimate of $4.41 and at 7.4x analysts’ 2021 EPS estimate of $4.67. They expect the company’s EPS to rise by 4.4% in 2020 and 5.9% in 2021.

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My take

Altria and Philip Morris are both defensive stocks that deliver stable earnings and constant dividends. Philip Morris is looking at expanding its iQOS products across the world. The company plans to introduce its e-vapor product IQOS MESH 2.0 this year. So, with strong growth potential, the company is still trading at a relatively cheaper valuation multiple. I think that investors could utilize the downturn to buy Philip Morris stock.

Altria faces pressure due to its investments in JUUL. With reports of vaping-related diseases and vaping reaching endemic proportions among young people, many states banned all e-vapor products. Also, JUUL has several pending legal cases. Altria’s management expects the cases against JUUL to increase. So, I think that Altria could be under pressure in the near term. I expect the stock to deliver strong returns from its current levels in the long run.


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